Michael Burry’s Warning: Stock Market Bubble No One Wants to See

Via Coastal Journal

“Sometimes we see bubbles” — The investor who called 2008 just said it again. As repo markets spike, MBS collateral hits crisis levels, and valuations break all records.

Michael Burry’s latest warning — “Sometimes we see bubbles” — has ignited a global debate. This in-depth financial white paper explores whether the 2025 stock market bubble is already bursting, as Fed repo data, MBS selloffs, and valuation metrics reach historic extremes.

Michael Burry, who made billions by shorting the MBS crisis in 2008, and has since averaged about 25% annualized returns, doesn’t say much these past few years. However, when he does, markets pay attention.

On October 30, 2025, a single post on X within hours, titled “Michael Burry tweet” and “stock market bubble,” became a trending topic on Google. It was marked as “Breakout” across various related topics, including NVIDIA, Earnings, and Prediction.

On Google Trends, interest in “stock market bubble” surged to its highest level in a year, climbing over 90% in the past 30 days as investors scrambled to decode his message. ( See attached chart from Google Trends: the spike mirrors early-2008 search behavior.)

The world remembered that when Burry last sounded this confident — in 2006 and again today — he was early, mocked, and then right.

A Flashback to “The Big Short” Scene

The post felt like déjà vu.

In The Big Short, Bale’s version of Burry tells his main investor:

“It’s a bubble.”

The investor smirks: “No one knows it’s a bubble — that’s what makes it a bubble.”

Burry replies: “Thats stupid, There are always markers.”

That line matters now.

In 2006, he saw those markers in subprime mortgage data. Today, he’s seeing them again along with Chief Market Strategist Greg Crennan of Golden Coast Consultants — this time in tech valuations, repo market stress, and the psychology of investors who believe this time is different.

Let’s break down his three sentences as a map through 2025’s market reality.

“Sometimes, We See Bubbles.”

Bubbles are not invisible — they’re ignored. The data in 2025 is screaming the same warning signs that preceded the dot-com crash in 2000 and the housing collapse in 2008 with vibes of 1929. (More on 1929 similarities HERE )

Valuation Markers Are Blinking Red

The Shiller P/E ratio now sits at 41, the second-highest level in history. That’s higher than 1929, higher than 2008, and only rivaled by the dot-com mania of 2000 at 44.

Historically, whenever the Shiller P/E exceeds 35, average 10-year real returns hover close to $0 or negative returns.

The Buffett Indicator — total U.S. market cap to GDP — now stands at 217%, its highest level ever recorded.

That’s 69% above the long-term trend line and nearly two standard deviations above the historical average, according to Current Market Valuation.

In plain terms, this means U.S. stocks are valued at more than 2x the size of the economy itself. The long-term average is around 120%, with anything above 160% historically marking bubble territory. When valuations stretch this far — two full deviations beyond the mean — they don’t stay there. Every prior reading near this level, in 2000, 2008, and 2021, was followed by sharp mean reversion.

At 217%, the market isn’t just expensive — it’s statistically euphoric. (main reason why Buffett is sitting in about $350 Billion in cash )

If that sounds abstract, here’s the translation:

• The combined market cap of Apple, Microsoft, and NVIDIA exceeds $13 trillion.
• That’s larger than the GDP of Japan and all of Europe combined.
• Apple, Microsoft and Nvidia market cap alone equals the entire GDP of California — the world’s fifth-largest economy.

And yet, Apple’s annual total revenue is roughly $195 billion.

At a $4 trillion valuation, investors are paying 22x earnings for a company growing at 3% a year (basically the rate of inflation)

NVIDIA — the darling of the AI boom — earns $100 billion annually in revenue but is valued at $5 trillion, a price-to-earnings ratio of 60.

That means it would take half a century for its profits to equal its valuation — if profits never fell.

October 2025, the S&P 500’s median price-to-sales ratio stands at around 3.4, more than double its long-term median of 1.6. The price-to-book ratio for the index is approximately 5, which is at or near a record high, far surpassing the historical average of roughly 2.5.

These valuation metrics highlight that the market is at historically elevated levels relative to both sales and book value. As a result, current S&P 500 ratios reflect some of the highest stock market valuations on record when measured against underlying fundamentals.

“Sometimes, There Is Something to Do About It.”

In 2006, Burry saw the cracks in the foundation — rising default rates, collapsing lending standards, and artificially high housing prices — and placed a radical bet. He shorted the subprime mortgage market.

It nearly broke him before it made him a billionaire.

When he says “sometimes there is something to do about it”, he’s referring to action grounded in conviction — not noise.

Today, that “something” could mean betting against inflated valuations, or simply building defensive positions while liquidity keeps markets afloat.

But let’s understand why Burry might be seeing a setup similar to 2007. The signals are coming from multiple different parts of the markets this time. They’re coming from repo markets, MBS collateral stress, and central bank liquidity operations — the plumbing beneath the system.

The Plumbing Problem: Repo Markets

On October 31, 2025, the Federal Reserve’s Standing Repo Facility (SRF) logged $20.35 billion in overnight operations — the highest single-day total since the 2019 Repo Crisis.

Here’s the kicker: $15.95 billion of that was collateralized by mortgage-backed securities (MBS).

That’s not a routine liquidity injection. That’s a red flare.

It means that banks and dealers couldn’t fund their MBS holdings in private markets — they had to go to the Fed’s emergency facility instead.

This week, Jerome Powell confirmed during his post-FOMC remarks that quantitative tightening (QT) has effectively ended and that the Fed will shift its focus towards buying short term T-bills and MBS. In plain English: he quietly acknowledging the collateral and liquidity problems today.

What’s striking is the timing. On the same day repo usage spiked, two major MBS ETFs — MBB (iShares MBS ETF) and SPMB (SPDR Portfolio MBS ETF) — plunged on heavy institutional selling:

• MBB fell from $96.25 to $95.52 in just two sessions, a 0.77% drop on 1.4 million shares of volume, the highest in months.

  

• SPMB dropped from $22.72 to $22.55, with volume near 1 million shares, also far above its average.

Why is this important? These ETFs track Mortgage Back Security values as explained here in The Big Short.

Mortgage-backed securities are supposed to trade as stable, dull, and predictable value. When their prices start falling, like we’re seeing now, it’s the same early warning Danny, Vinny and Porter spotted in 2007 when the ABX index was down: the “safe” collateral isn’t safe anymore, and the plumbing of the system is quietly clogging.

Technically, that’s what traders call distribution — large-scale selling by funds and institutions.

This combination — MBS repo demand surging, ETFs selling off, and Powell admitting QT is over — is eerily similar to the early warning phase of credit events of past form 2008, 2019 and 2023.

“Sometimes, The Only Winning Move Is Not to Play.”

After Burry’s 2006 short position began losing money, his investors revolted.

He was right, but early — and being early can look indistinguishable from being wrong.

For 18 months, he bled cash while the stock market rose, even as mortgage defaults accelerated. Only when Bear Stearns collapsed in March 2008 did his trade begin to pay off. By the time Lehman Brothers went under in September, he’d made $1.4 billion in profits — but the psychological cost was enormous.

That’s why this final sentence matters.

When Burry says “the only winning move is not to play”, he’s speaking from his own past trauma.

He’s saying: sometimes, knowing the bubble will burst isn’t enough. The timing will destroy you before the logic vindicates you.

And maybe that’s where we are now — in a market that looks insane but keeps floating, driven by Federal Reserve liquidity (like it always does), and an almost religious belief in the AI narrative fueled by Gamma Squeezes.

Market Psychology: Belief as a Bubble

Every bubble is a story people tell themselves to justify the price.

In 1929, it was the automobile, radios, and electric appliances.

In 2000, it was the internet.

In 2007, it was housing.

In 2025, it’s artificial intelligence.

NVIDIA’s valuation implies that AI will transform global GDP — and perhaps it will. But every transformational technology in history, from railroads to radio to dot-com, has endured a crash before its true adoption curve began.

When the story becomes faith, price becomes scripture — and that’s when markets become dangerous.

The Consumer Cracks Beneath the Surface

The macro data tells a consistent story: the consumer is tapped out.